Introduction:

The term bank is either derived from old Italian word banca or from a French word
banque both mean a Bench or money exchange table. In olden days, European
money lenders or money changers used to display (show) coins of different
countries in big heaps (quantity) on benches or tables for the purpose of lending or
exchanging.
Meaning:
A bank is a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly by loaning or indirectly through
capital markets. A bank links customers that have capital deficits and customers
with capital surpluses.
Due to their importance in the financial system and influence on national
economies, banks are highly regulated in most countries. Most nations have
institutionalised a system known as fractional reserve banking, under which banks
hold liquid assets equal to only a portion of their current liabilities. In addition to
other regulations intended to ensure liquidity, banks are generally subject to
minimum capital requirements based on an international set of capital standards,
known as the Basel Accords.
Advantages & Disadvantages:
Credit Unions typically pay higher dividend rates on savings.
Credit Unions typically offer lower rates on loans
Credit Unions typically provide better service; since they are owned and
governed by their membership, they tend to prioritize the needs of their
members above all else
Credit Unions operate on a not-for-profit business model, so excess earnings
are returned back to the membership in form of competitive rates and lower
fees, and sometimes even special dividends
Many Credit Unions offer the same products and services found at banks
Credit Unions often have added-value benefits, such as free financial
education, discounted theme park tickets, and special member rates for

services such as home alarm systems...even discounts at online retailers like

Barnes & Noble.
Disadvantages
Credit Unions, and in particular smaller local credit unions, struggle to match the
level of convenience (ATMs and branches) that many banks provide their
customers, although many CUs are part of shared networks which enhance the
breadth of delivery channels available to their members
Some Credit Unions are limited in their product offerings
One must qualify for membership
One must pay a membership fee to join.
Importance:
1. Mobilising Saving for Capital Formation:
The commercial banks help in mobilising savings through network of branch
banking. People in developing countries have low incomes but the banks
induce them to save by introducing variety of deposit schemes to suit the
needs of individual depositors.
2. Financing Industry:
The commercial banks finance the industrial sector in a number of ways.
They provide short-term, medium-term and long-term loans to industry. In
India they provide short-term loans.
In India, the commercial banks undertake short-term and medium-term
financing of small scale industries, and also provide hire- purchase finance.
3. Financing Trade:
The commercial banks help in financing both internal and external trade. The
banks provide loans to retailers and wholesalers to stock goods in which they
deal. They also help in the movement of goods from one place to another by
providing all types of facilities such as discounting and accepting bills of
exchange, providing overdraft facilities, issuing drafts, etc.

4. Financing Agriculture:
The commercial banks help the large agricultural sector in developing
countries in a number of ways. They provide loans to traders in agricultural
commodities. They open a network of branches in rural areas to provide
agricultural credit. They also provide financial assistance for animal
husbandry, dairy farming, sheep breeding, poultry farming, pisciculture and
horticulture.
5. Financing Consumer Activities:
People in underdeveloped countries being poor and having low incomes do not
possess sufficient financial resources to buy durable consumer goods. The
commercial banks advance loans to consumers for the purchase of such items
as houses, scooters, fans, refrigerators, etc..
6. Financing Employment Generating Activities:
The commercial banks finance employment generating activities in developing
countries. They provide loans for the education of young persons studying in
engineering, medical and other vocational institutes of higher learning. They
advance loans to young entrepreneurs, medical and engineering graduates,
and other .
7. Help in Monetary Policy:
The commercial banks help the economic development of a country by
faithfully following the monetary policy of the central bank. In fact, the
central bank depends upon the commercial banks for the success of its policy
of monetary management in keeping with requirements of a developing
economy.
Objectives
1. Rapid Industrial growth:
Industrial sector is the dynamic sector of the Indian economy. This sector
contributes to the generation of employment and income in the country.

Funds are provided by the development banks to start a new business venture,
expansion and diversification of the business in new sector etc.
2. Encouraging entrepreneurs:
Industrialisation helps in curbing economic and social problems thereby
making economies progress. Emerging entrepreneurs are encouraged to give
shape to their ideas.
3. Balanced regional development:

There has been always an issue related to regional disparities. Development

bank helps in curbing these regional disparities by providing funds to the
entrepreneurs at low rate of interest if the organisation is planned in the
backward areas.
4. Filling gaps:
It is not possible for the commercial banks to fulfill all financial needs of all
the customers. Absence of organised capital market, absence of adequate
facilities for financing industries arise the problem of slow development of
industrialisation. Such development banks can fulfill the credit gap. They
provide long- term funds for industries where gestation period may be longer.
5. Helps government:
Government formulates financial policies with the help of development banks.
They also help in implementing these policies. For example, NABARD bank is
set up as an apex development bank for extending support to the rural areas.
It helps the government in matters relating to the rural development, offers
training and research facilities for banks working in the field of rural
development, and acts as a regulator for co-operative banks and RRB's.